TikTok Interest Shows Walmart's Hidden Value
(NYSE: WMT) has mostly been a boring stock.
Dividend Aristocrat has long delivered reliable income for investors and moderate growth at a modest valuation, and as the world’s largest retailer and biggest company by revenue, its strengths are evident.” data-reactid=”13″>The Dividend Aristocrat has long delivered reliable income for investors and moderate growth at a modest valuation, and as the world’s largest retailer and biggest company by revenue, its strengths are evident.
Under CEO Doug McMillon, however, the company has been pushing beyond its traditional core as a brick-and-mortar retailer, becoming the country’s second-largest e-commerce business with initiatives like online grocery pickup and delivery and a push to build out its own third-party marketplace. However, another strategy under McMillon has gone largely ignored by investors, and it could be a source of huge value in the future.
Image source: Walmart.
Making an investment in tech
in Flipkart, India’s biggest e-commerce company, in 2018. In 2016, the retail titan acquired a 5% stake in JD.com (NASDAQ: JD) as part of a strategic alliance with the Chinese e-commerce company that also runs its own logistics network. Since then, JD stock has nearly quadrupled, valuing Walmart’s stake at about $6.5 billion. Another 2016 deal to acquire Cornershop, a Latin American grocery delivery company, was blocked by regulators.” data-reactid=”32″>Walmart has forged deals with high-growth tech companies, taking a 77% stake in Flipkart, India’s biggest e-commerce company, in 2018. In 2016, the retail titan acquired a 5% stake in JD.com (NASDAQ: JD) as part of a strategic alliance with the Chinese e-commerce company that also runs its own logistics network. Since then, JD stock has nearly quadrupled, valuing Walmart’s stake at about $6.5 billion. Another 2016 deal to acquire Cornershop, a Latin American grocery delivery company, was blocked by regulators.
Walmart explained the potential investment move by saying, “The way TikTok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets. We believe a potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses.”
But where did Walmart get the idea to go this direction, striking deals with Flipkart, JD.com, and now potentially TikTok? Well, there is a sort of playbook for doing this already.
Following the Alibaba/Tencent template
(NYSE: BABA) and Tencent (OTC: TCEHY) loom large over the Chinese economy. Alibaba operates the country’s biggest e-commerce marketplaces, including Tmall and Taobao, and generated more than $1 trillion in gross merchandise volume in its last fiscal year. Tencent owns the popular WeChat super app, which is used for everything from messaging to gaming to broadcasting to social media and videoconferencing.
What it means for Walmart
As the world’s largest retailer, Walmart has a lot in common with Alibaba and Tencent in its scale and dominance, but the company’s brick-and-mortar business has hit a ceiling. In the U.S., it’s fully saturated the market with stores — and though it continues to open new locations internationally, it’s clearly focused on e-commerce outside of its home market as well, given its investments in India-based Flipkart and China-based JD.com.
Taking a stake in TikTok would be a significant step forward for Walmart in its e-commerce strategy, but even if the deal falls through, it shows Walmart is focused on making investments in emerging tech companies that it can leverage with its massive scale and retail and logistics expertise — meaning more deals are likely to come in the future, whether or not its TikTok pursuit is successful.
As Walmart continues to transition beyond its traditional brick-and-mortar confines, the stock may deserve a higher earnings multiple. This is no longer the stodgy retailer it was a decade ago.
Jeremy Bowman owns shares of Baozun, Facebook, JD.com, Sea Limited, and Starbucks. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Baozun, Facebook, JD.com, Microsoft, Sea Limited, Starbucks, and Tencent Holdings and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short November 2020 $85 calls on Starbucks. The Motley Fool has a disclosure policy.” data-reactid=”56″>Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman owns shares of Baozun, Facebook, JD.com, Sea Limited, and Starbucks. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Baozun, Facebook, JD.com, Microsoft, Sea Limited, Starbucks, and Tencent Holdings and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short November 2020 $85 calls on Starbucks. The Motley Fool has a disclosure policy.
TikTok Interest Shows Walmart’s Hidden Value was originally published by The Motley Fool” data-reactid=”57″>TikTok Interest Shows Walmart’s Hidden Value was originally published by The Motley Fool
